Can a Buyer of a Franchise Select the Business Location?
UPDATED: June 19, 2018
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The buyer of a franchise (franchisee) has some say when determining the location of her franchise. The amount of input a buyer may be able to give when determining the location of their franchise will also depend on the experience of the franchisor. However, a good franchisor, even a less experienced one, should have its own tools to assist the buyer in making her location decision. On the other hand, because the franchisor knows its brand the best, a franchisee should be open to receiving the franchisor's input when determining where to open the franchise.
Initial Franchise Location
The location of your franchise and your franchise territory is generally defined in the franchise agreement, but be aware the franchiser generally has the "bigger say" and can limit the territory and the location of the franchising business so long as it has a business reason to justify the restricted area. It is therefore important to have a franchise attorney scrutinize the franchise agreement to ensure that you are getting the terms that you negotiated. Generally, after the franchisee decides on a franchise to invest in, he or she will start thinking about where to best place her store. Many franchisors expect you to have a general area in mind when you make the decision to open one of their franchises. However, if you come to an initial meeting with a specific location in mind, be prepared to rethink your initial location strategy.
Most franchisors will have a specific set of criteria developed to assist you in choosing a location that will help to ensure the success of the new franchise. This will include the amount of parking, the amount of foot traffic, and who the neighbors are in the immediate area. For example, if you want to open a sandwich franchise, is your store in a location that attracts a lot of people out for lunch? Parking is equally important. Are drivers able to take a left turn into your parking lot? Your immediate neighbors are also an important thing to think about when determining a store location. What are the other businesses surrounding your location?
Positioning Your Franchise and Understanding Your Franchise Territory
A major retailer, such as a Walmart or Macy’s, may be an ideal neighbor to have, as these stores will bring a lot of foot traffic to the surrounding location. Further, it is also important to think about who is right next door. For example, if you want to open up a toy store, you probably won’t want to open it next to a gun shop. If you want to open a bakery, it may be best to open it next to a lunch place so people will visit you for dessert.
While some franchisors may already have specific locations in mind for their next store, most franchisors will generally give the franchisee their guidelines and then leave it up to the franchisee to find a place that falls within those guidelines. Be aware, however, that the franchisor may limit your franchise territory to only a few blocks. Your franchise territory is the territory in which the franchisor guarantees that another of the same franchise will not open. Further, your franchise territory may be hard to negotiate. This is especially true if the franchisor has a well-known or well-developed franchise.
Signing the Franchise Lease
Once the franchisee and franchisor have settled on a location that meets the needs of the franchise, you will sign a lease for your business with the building owners. A good franchisor will help you through this process, and may be able to negotiate certain provisions in the lease. For example, if you want to move your franchise into a mall that has a Walmart as its “anchor” business, you may be able to include a provision in the lease that allows you to renegotiate the terms of the lease if the Walmart moves out of the mall. A franchisor can also help you negotiate the rent, the percentage that the rent will rise each year, and determine what kind of business insurance the building owner requires you to have. A building owner will generally be more willing to negotiate terms with a franchise owner more than any other business because franchises have a higher rate of success than many mom-and-pop businesses.
The Ideal Franchise Location
At the end of the day, an ideal franchise location has plenty of available parking, a lot of foot traffic, and at least one or two anchor businesses to ensure that the foot traffic is maintained. Most importantly, however, is that you stay within your budget and within the economic means of your business. Remember that when you are seeking out the right location, you are planning for your future. This means that all aspects of the location must be taken into consideration, especially the price.
To help ensure that you are signing into a smart lease and a good franchise plan, you should consult with an attorney who primarily represents franchisees.